Coverage Testing

[Archimage]

I have a plan would not pass 410(B) testing under the safe harbor (not benefitting) due to a top heavy minimum. I know you can then see if it passes 401(a)4. It looks like the prototype doc they are on does not allow this but rather states that you keep giving EEs with the most hours a contribution until they do pass. Is this typical of most prototypes?

[Guest merlin]

I don't know about typical, but certainly not uncommon. Corbel even has fail-safe language in their volume submitter docs.Which leads me to another question. Corbel's fail-safe language refers to passing 410(B)(1), which includes both the average benefit test as well as the ratio % test. Corbel now says the plan language is wrong, that the fail-safe should only use the rpt. They are going to supply corrective language, but according to the website it won't be released until April. Anyone know anything about this?

[Tom Poje]

wait, wait, wait.

Exactly what are you saying.

It sounds like you are saying:

Plan passes coverage if top heavy people are treated as includable benefiting. Ok, that is all you care about for coverage.

Now you fail the safe harbor (unrelated to coverage). The document shouldn't be addressing that issue. that is 401(a)(4)

[Archimage]

So if I pass coverage testing treating THMs as benefitting then that is the end of 410(B). However, this does trigger the requirement of now passing 401(a)4.

[Archimage]

Okay, it is a Friday so my mind is fried. I see my error in thinking. For some reason I am thinking the fail-safe language got rid of 401(a)4 when intstead it gets rid of the ABT part of 410(B).

Tom, set me straight here if I am still going towards the dark side.

[Tom Poje]

yes, because 410(B) is only interested in

how many NHCEs are covered as compared to how many HCEs are covered.

Thus the sched T treats any receiving something as benefiting.

401(a)(4) is concerned with the 'how much' comparison between NHCEs and HCEs

[Archimage]

Here is another scenario added onto the previous that I have never come across. What would you give the top heavy minimum participants if you did fail 401(a)4? My guess is the full ER contribution.

Another scenario: Plan fails 410(B) with TH mins included. When you bring in additional participants, would they get the TH minimum or the full contribution?

[Tom Poje]

Arch:

If you fail 410b with the TH people, then you have to 'expand' the group, using a corrective amendment under xxxxx-11g or whatever that fool thing is.

It has to be a meaningful benefit - if ee is terminated, and 0 vested then that wouldn't work.

You could give him anything, but then no matter what you would have to pass a(4), so give him enough to pass that as well.

[Archimage]

What if the doc has the fail safe requirements that says they get a contribution? Would you still need the corrective amendment? The doc just says bring in participants and give them the ER contribution but does not state whether you give them the TH or the regular ER contribution?

[Guest merlin]

Archimage, does your plan's fail-safe language allow you the option of giving less than the plan's regular allocation? Sounds pretty liberal for a prototype. Usually f-s provisions are written to cure a coverage failure only by expanding the benefiting group as described by Tom Poje, but only by giving them the regular plan contribution. If this is what your plan says ,then you never get to the top heavy-401a4-corrective amendment.

[Guest merlin]

Arch, Corbel's answer to me was that you're expanding the group of people eligible to get the regular employer contribution. No corrective amendment is necessary because the plan is telling you what to do. On the other hand,since the correction is hard-wired into the doc you lose the flexibility to give something less and then pass the general test, which probably ends up costing the client more money.

As I said in my initial post, Corbel is supposed to come out with corrected language, and will also allow their vs users the option of deleting the f-s language entirely. I vote for deletion.

[Archimage]

But would your bring your TH min participants up to the regular ER contribution amount?

[Guest merlin]

Assuming your f-s language reads the same way as mine (Corbel's) does, yes. You have no choice. The plan's language is now more restrictive than it otherwise could be. Absent the f-s language you could pick and choose who gets what in order to pass coverage, subject to "meaningful" and 401a4. With the fail-safe language you simply keep giving more and more people the regular allocation until the plan passes coverage. And it appears that passing coverage means passing the ratio % test only, not the avg. ben . test.

[Archimage]

I agree with your assessment. Does the Corbel doc allow you to test TH mins as benefitting? I am curious if their doc even allows you the opportunity to do the 401(a)4 general test.

[Guest merlin]

Nope. They're " treated as not benefitting and shall therefore be eligible to be included in the expanded class of Participants who will share in the allocation provided under the plan's non top heavy formula ".

[Archimage]

That would be nice if all docs did that. Anyway, to summarize this thread and make sure I understand everything:

If a plan passes 410(B) coverage testing with TH mins included as benefitting, the administrator will then have to cross-test the plan under 401(a)4. The TH mins would have to get the gateway and a corrective amendment would have to be added as Tom noted.

If a plan fails 410(B) coverage testing with TH mins included as benefitting (assuming their is no fail-safe language that does not let you treat TH mins as benefitting) you would bring participants, including your TH mins, up the regular ER contribution level until you pass.

Set me straight if I have erred in my logic.

[Tom Poje]

well now that is a fine kettle of fish. so I would see it as follows:

1. test coverage treating the TH people as benefiting and put the result on your sched T.

2. test treating the TH people as not benefiting,

a. if plan passes 410(B) you do not have to test 401(a)(4).

b. if plan fails, you have to test under 401(a)(4)

i. test using allocation method. if plan passes you are finished. there should be no gateway, since you did not cross test - at least that is how I understand it, the gateway only applies to cross testing

ii. if plan fails allocation method, test using accrual method. at that point you are cross testing and therefore have to bring up the people to the gateway minimum.

[Guest merlin]

Just to be sure we're all on the same page, let me summarize it from a slightly different angle:

1.With fail-safe language in the plan you expand the coverage group as necessary to satisfy the plan. Everybody gets the plan allocation, everybody considered as benefiting for (probably) the ratio % test only. Since everybody is getting the regular plan allocation, there is no a4 testing to be done. Since the plan dictates the correction there is no corrective amendment needed.

2.Without fail-safe language you correct any way you can. If some people wind up with only the t/h minimum,follow Tom's prescription above. Make corrective amendment as necessary.

Agreed?